U.S. Health Spending To Consume Vastly Greater Share Of Personal Income If Nation Doesn't Slow The Rate Of Growth, Analysis Shows

Health Affairs Thematic Issue Highlights Rapid Spending Growth In Health Care And Explores What Might Work To Slow It

Bethesda, MD -- If the growth rate in
U.S. health care spending continues at current levels, a vastly greater share
of personal income and economic resources will be devoted to health care,
according to a new analysis in the September/October issue of Health Affairs. And even if that growth
rate could be slowed sharply -- to a pace of just 1 percentage point
faster than annual per capita growth in the gross domestic product -- more
than half of any increase in personal income would still go to health care over
the next 75 years. http://content.healthaffairs.org/cgi/content/abstract/28/5/1253

In an update of work
published in 2003, Harvard researchers Michael Chernew and David Cutler, along with the University of Michigan's Richard Hirth, project health spending in relation to economic
growth over the period 2007 to 2083. They find that if health spending grows
about two percentage points faster than real per capita GDP, a staggering 119
percent of the real increase in per capita income would be devoted to health
spending. This means, in effect, that the entire net increase in income over
the period would go to consumption of health care resources, as well as a
portion of what currently goes to other goods and services.

On the other hand,
if the nation were to accomplish a Herculean feat -- slowing the growth of
health spending to just one percentage point faster than real per capita GDP
-- 53.6 percent of real income growth would go to health care. That's
"affordable," the authors argue -- although such an outcome would still
pose critical challenges for the United States.

"These projections make
the impact of health care spending more dire," the authors say. If the United
States hopes to maintain a reasonable consumption of nonmedical goods and
services, slowing the rate of health spending will be crucial.

Chernew says the analysis makes clear that
policymakers face tough choices if they fail to bring health spending under
control. To pay for health care under programs such as Medicaid, state
governments with balanced budget requirements would have to cut back even
further on essentials such as education or social services. Individual Americans
would be devoting far more of their paychecks to health care and would be
forced to cut most other items in the family budget.

Chernew's paper is one of a series in a thematic Health Affairs issue on bending the
curve of rising health spending. The
issue and launch activities are supported by grants from Aetna, the Aetna
Foundation, and the Commonwealth Fund. http://content.healthaffairs.org/content/vol28/issue5/

Strategies To Control Spending Without
Compromising Quality

Henry Aaron of the Brookings Institution and Paul Ginsburg of the Center for
Studying Health System Change conclude that the evidence that U.S. health care
spending is excessive is overwhelming. To lower health spending growth without
lowering net "welfare" -- the well-being that
people derive from consuming goods and services -- the authors maintain
that the health care system must:

•
Organize the delivery of care to promote efficient
cooperation among the many providers and practitioners involved in delivering
modern medical treatment. The current fee-for-service payment system works
against efficiency, and provider payment reform has a critical role to play in
promoting efficient and coordinated care delivery.

•
Conduct costly research over many years to
identify which procedures are effective at reasonable cost; develop protocols
that enable providers to identify in advance patients whose expected benefits
of treatment are low or negative; design incentives that encourage providers to
act on these protocols; and educate patients about why such protocols should be
sustained.

In a separate paper,
economists Sheila Smith and Mark
Freeland of the U.S. Centers for Medicare and Medicaid Services and
Harvard economist Joseph Newhouse estimate that medical technology explains 27-48
percent of health spending growth since 1960. This is a smaller percentage than
earlier estimates, some of which pegged the contribution of technology to
health spending growth at two-thirds or more. Growth in aggregate income (GDP) also
stands out as an important driver of health care cost growth, as does the
generosity of insurance coverage. However, the researchers argue that over the
longer term, insurance is not likely to exert as large a positive effect on
spending as it has historically, partly because it already covers 86 percent of
personal health care spending, up from 45 percent in 1960. The structure of
insurance coverage is likely to develop in a way that will constrain costs
relative to historical experience, leading to slower growth in the future. To
constrain growth, changes to the nature of coverage must be made, they
conclude. http://content.healthaffairs.org/cgi/content/abstract/28/5/1276

Other Highlights In This Issue

•A paper by John Agwunobi of Walmart and Paul London, an economic consultant,
examines lessons from the retail industry to show how more intense competition
based on improved supply-chain management and high-volume purchasing can reduce
the costs of generic and brand-name drugs, medical supplies, over-the-counter
remedies, and vision care. http://content.healthaffairs.org/cgi/content/abstract/28/5/1336

•The federal government estimates that health
care fraud accounts for 3-10 percent of total health care spending -- between
$75 billion and $250 billion in fiscal year 2009. Successful efforts to stop
such abuses will require aggressive, innovative, and sustained attention to
protect taxpayers and beneficiaries, writes Lewis Morris, chief counsel to the federal Health and Human Services
Office of Inspector General. http://content.healthaffairs.org/cgi/content/abstract/28/5/1351

•An Aetna pilot program shows how it's possible
to help those who have serious or advanced illnesses obtain hospice or
palliative care -- if that is their choice. The care management program
provided culturally sensitive, supportive information to help plan members make
informed, timely choices about hospice and palliative services. Although
increasing hospice care was not a goal of the program, in the sample population
more members did choose hospice care than had been the case in previous years
and among other groups of patients. Patient satisfaction increased, and the use
of acute care, intensive care, and emergency services declined, write Randall Krakauer and colleagues at Aetna. http://content.healthaffairs.org/cgi/content/abstract/28/5/1357

•A paper describes the lessons from Maryland's
hospital payment system in which all payers -- public and private -- pay
the same rates and share equitably in the financing of hospital uncompensated
care. Robert Murray, executive
director of the Maryland Health Services Cost Review Commission, writes
that had the state's "all-payer" rate-setting system for hospitals been adopted
nationwide, it might have saved $1.8 trillion over three decades. The commission
is implementing initiatives that will link hospital payment directly to
outcomes (rates of hospital complications and readmissions) in 2009 and 2010. http://content.healthaffairs.org/cgi/content/abstract/28/5/1395

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Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at www.healthaffairs.org.